To Bolster Motorola Mobility Google Will Cut Heads And Devices

Before Google acquired Motorola Mobility the company was already struggling to compete with rivals, including LG, Samsung and especially Apple. Now in an effort to revive the fortunes (literally) of the Google division, Mountain View will lay off 4,000 people and simplify the unwieldy Motorola device line-up according to a story in the New York Times.

Google will also close roughly 30 offices or “facilities” around the world. Most of the employee cuts will come from locations outside the US.

The 4,000 employees represent 20 percent of Motorola Mobility’s current workforce. Google expects to take a roughly $275 million charge this quarter for costs associated with the layoffs (i.e., severance, outplacement services). The following excerpt is from Google’s “8-K” filing about the matter:

On August 3, 2012, Motorola Mobility (Motorola), a wholly owned subsidiary of Google Inc. (Google), determined that it would reduce its headcount by approximately 4,000 out of a total of about 20,000 employees. Two-thirds of the reduction is set to occur outside of the U.S. In addition, Motorola plans to close or consolidate about one-third of its 90 facilities, as well as simplify its mobile product portfolio—shifting the emphasis from feature phones to more innovative and profitable devices.

These changes are designed to return Motorola’s mobile devices unit to profitability, after it lost money in fourteen of the last sixteen quarters. That said, investors should expect to see significant revenue variability for Motorola for several quarters. While lower expenses are likely to lag the immediate negative impact to revenue, Google sees these actions as a key step for Motorola to achieve sustainable profitability.

Google pledged, as a condition of approval for the $12.5 billion Motorola acquisition, to keep the company “at arms length” and not provide it with any special Android access or advantages. An anonymous former Motorola executive is quoted in the NY Times article saying that Google is effectively making good on that pledge and that it is now “more difficult . . . to have impromptu collaboration with the Android team.”

As an aside, it’s interesting that Google chose Taiwanese hardware maker ASUS rather than Motorola to build the popular Nexus 7 tablet. One would hope that the hardware-software integration Google’s ownership of Motorola promises will result in some compelling new devices. If not it will continue to founder.

Reminiscent of Steve Jobs’ return to Apple when he simplified Apple hardware into consumer and “pro” categories, Motorola will now focus on building only a handful of phones and tablets:

[Motorola CEO Dennis] Woodside also plans to cut the number of devices Motorola makes from the 27 it introduced last year to just a few. He wants to make the company’s products cool again by loading them with things like sensors that recognize who is in a room based on their voices, cameras that take crisper photos and batteries that last for days.

Motorola smartphones have suffered because of generally weak design and lackluster marketing. The company has been unprofitable for the better part of the last four years, which is largely why it was sold to Google. The conventional view is that Google bought Motorola to acquire its patent portfolio first and its hardware assets second.

Google reportedly doesn’t want all of those assets. Accordingly, Google is widely expected to sell off the Motorola Home division, which makes set-top boxes, modems and other hardware and software. However, that might turn out to be a mistake if Google is really serious about “the living room.”

Motorola manufactured the original “Droid” device for Verizon, which was the first Android smartphone to have success against the iPhone.